ESG and RSG Ambitions Causing Shifting Tides in the Oil and Gas Industry’s M&A Scene

ESG and RSG Ambitions Causing Shifting Tides in the Oil and Gas Industry’s M&A Scene

USA News Group – Last year, the oil and gas industry saw a total of 74 M&A deals in 2021 valued at a billion dollars or more. The largest O&G deal of all was the $13.9 billion merger plan of Lundin Energy’s exploration and production business into Aker BP. In the aftermath, Lundin Energy plans to continue with its renewables business as a standalone company. The market has witnessed a flurry of significant activities from 2021 through 2022 so far, showing interest in reducing production costs and even improving ESG status, including the acquisition of Renewable Energy Group, Inc. (NASDAQ:REGI) by Chevron Corporation (NYSE:CVX), Vine Energy by Chesapeake Energy Corporation (NASDAQ:CHK), Seven Generations Energy by ARC Resources Ltd. (TSX:ARX) (OTC:AETUF), and the latest ongoing takeover proposal of Petroteq Energy, Inc. (OTC:PQEFF) by Viston United Swiss AG.

Purchasers are paying out premium pricing, as evidenced by the offer for clean technology company Petroteq Energy, Inc. (OTC:PQEFF), from Viston United Swiss AG, at a price point of approximately 279% over the closing price of the Common Shares on the TSX Venture Exchange on August 6, 2021, and a 1,032% premium to the 52-week volume weighted average trading price on the TSX-V prior to the offer originally made in April 2021, before the stock was halted on that exchange.

After being given a deadline extension of April 14, 2022, Petroteq’s Board Members shared their unanimous intention to tender their shares through the offer.

“After thorough consideration of all aspects of the Viston Offer, the advice provided by Haywood and consulting with its other advisors, the Board has unanimously determined to recommend that Shareholders accept the Viston Offer and tender their Common Shares,” said the Board in their official statement.

The offer itself is valued at a considerable premium over the market price, with a 100% all-cash consideration of ‎C$0.74 ‎per common share.

Meanwhile, through its US shares on the OTC under the PQEFF symbol, shares of Petroteq are trading around US$0.3505 (C$0.44) on March 21, 2022. At that price point, the C$0.74 still represents a potential 68% premium over the more current trading price.

Petroteq specializes in oil production, having developed proprietary technologies that enable the company to produce oil without water, waste tailings ponds and emissions. In addition to sustainable oil production, their technology cleans oil sands of all hydrocarbons, creating a purified sand as part of an overall ESG strategy.

So far, Petroteq has announced its willingness to assist Viston with its CFIUS filings.

"We are particularly pleased with the recognition this shows of our technology which we have taken from inception to commercial viability as a one of its kind in oil sands eco-friendly, green extraction,” said former Petroteq Chairman and CEO, Dr. Gerald Bailey, who retired in January. “We had always forecast a great future. However, we respect the value of this offer to shareholders and if it can be achieved it will reward our many dedicated supporters."

Chevron Corporation (NYSE:CVX) made its biggest bet so far in company history into alternative fuels, through a $3.15 billion acquisition of biodiesel maker Renewable Energy Group, Inc. (NASDAQ:REGI). While biodiesel and renewable diesel use similar feedstocks, renewable diesel undergoes a separate refining process to make it chemically identical to ultra-low-sulfur diesel.

As per the deal, Chevron said it would pay $61.50 in cash for each share of Renewable Energy, representing a premium of more than 40% prior to the company’s closing price the Friday before the Monday announcement took place. Since the announcement, REGI shares shot up to the premium price and continue to hover in that range.

The investment seems to project more of Chevron’s long-term plans to cut operational emissions to net zero by 2050 and in September pledged to invest $10 billion to reduce its carbon emissions through 2028, with about $3 billion earmarked for renewable fuels.

"Most people see (biodiesel) as growing in the U.S. and Southeast Asia ... and view it as a blendstock to get optimum margin because it's less expensive than renewable diesel," said Mark Nelson, Executive VP of Downstream and Chemicals for Chevron, in an interview with Reuters.

Goldman Sachs & Co was Chevron's financial adviser, while Guggenheim Securities advised Renewable Energy on the deal.

In an effort to pursue Responsibly Sourced Gas (RSG) certification and potentially triple its Haynesville gas production, Chesapeake Energy Corporation (NASDAQ:CHK) made a big splash with the acquisition of Vine Energy to be the biggest producer in the region by far.

While the deal was valued at approximately $2.2 billion, Chesapeake previously announced the acquisition as a “zero premium” transaction.

“We are pleased to integrate the outstanding Vine operations and assets into our portfolio, strengthening our position in the Haynesville Shale with over 900 additional drilling locations, immediately improving our free cash flow profile and accelerating a significant return of capital to our shareholders at a time of favorable natural gas prices,” said Nick Dell’Osso, Chesapeake’s President and CEO, in a company release.

Approximately 50% of onshore gas production in the continental US had a methane intensity of 0.12% or less, according to the most recently available EPA Subpart W data.

In early 2021, a deal valued at C$8.1 billion (including debt), saw shareholders owning more than 95% of the stock in ARC Resources Ltd. (TSX:ARX) (OTC:AETUF) approved a merger with Seven Generations Energy to create Canada’s 6th largest oil and gas company.

The deal required two-thirds approval by Seven Generations shareholders and a simple majority from ARC investors to proceed, and will now be put forward for court and other regulatory approvals. The offer of 1.108 Arc shares for each Seven Generations share values Seven Generations were about C$2.86 billion at the then ARC’s closing price of C$7.76.

At the time of the deal, ARC and Seven Generations said they expected to generate cost savings from synergies of about $110 million per year by 2022, while continuing to pay ARC’s quarterly dividend of $0.06 per share.

Since the deal went through, the value of the company has more than doubled, going from C$7.69 on March 21, 2021 to a high of C$16.37 on March 10th, 2022.

And that $0.06 per share quarterly dividend? It’s now a $0.10 per share dividend, expected to be paid out for April 18, 2022.

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